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Overview

Uruguay stands out in Latin America for being an egalitarian society and for its high income per capita, low level of inequality and poverty and the almost complete absence of extreme poverty. In relative terms, its middle class is the largest in America, and represents more than 60% of its population. Uruguay is positioned among the first places in the region in relation to various well-being indices, such as the Human Development Index, the Human Opportunity Index and the Economic Freedom Index. Institutional stability and low levels of corruption are reflected in the high level of public trust in government. According to the Human Opportunity Index constructed by the World Bank, Uruguay has managed to attain a high level of equal opportunities in terms of access to basic services such as education, running water, electricity and sanitation.

In July 2013, the World Bank classified Uruguay as a high-income country. By 2017, the Gross National Income per capita at purchasing power parity (PPP) amounted to US$21,870.

Since 2003, the Uruguayan economy has had positive economic growth rates, averaging 4,1% from 2003 to 2018. Uruguay’s economic growth has remained positive even in 2017 and 2018, in spite of recessions experienced by Argentina and Brazil, thus departing from previous patterns when growth was synchronized with that of its main neighbors. Prudent macroeconomic policies and a commitment to diversify its markets and products within the dominant agriculture and forestry sectors have increased the country’s ability to withstand regional shocks.

In order to reduce the dependency on its main trading partners, Uruguay diversified its export markets. In 2018, Brazil and Argentina, Uruguay’s traditional trading partners, only represented 12% and 5% respectively of the total merchandise exports. Nowadays, its main trading partners are China (26%) and the European Union (18%).

Two main characteristics —a solid social contract and economic openness— paved the way to poverty reduction and the promotion of shared prosperity that Uruguay successfully followed in the last decade.

According to official measures, moderate poverty went from 32.5% in 2006 to 8.1% in 2018, while extreme poverty has practically disappeared: it went down from 2.5% to 0.1% in the same period. In terms of equity, income levels among the poorest 40% of the Uruguayan population increased much faster than the average growth rate of income levels of the entire population. Nonetheless, there are significant differences: the proportion of the population below the (national) poverty line is still significantly higher in the North of the country; among children and youth (17.2% among children younger than 6, and 15% and 13.9% among the age groups 6 to 12 and 13 to 17, respectively); and, among the afro descendant population (17.4%).

Inclusive social policies have focused on expanding program coverage; according to the World Bank, around 87% of the population aged 65 or more is covered by the pension system. This is one of the highest coefficients in Latin America and the Caribbean alongside Argentina and Brazil.

The strong macroeconomic performance was also reflected in the labor market, with a historically low unemployment rate recorded in 2011 (6.3%). However, given the noticeable slowdown in economic growth, the unemployment rate increased to 7.9% in 2018.

Despite recent progress in Uruguay, several structural constraints to growth remain, in particular in the areas of infrastructure investment, integration into global value chains and education/skills performance, which may obstruct the progress towards sustainable development outcomes. The strong institutional performance in other areas, such as public trust in government, low corruption and a consensus-based political approach, together with a deep commitment to strengthening its institutional set-up, give the country a solid basis from which to continue renewing its social contract and put in place policies to address such constraints.

Uruguay maintains an adequate macroeconomic framework but in a much more complicated external environment.

The World Bank Group (WBG) has backed Uruguay’s development process for more than 60 years through different instruments, including loans, insurance, donations, technical assistance and knowledge exchange.

Uruguay is included in the countries of highest income among WBG active borrowers, and it demands, in particular, the following:

the development of finance services and innovative knowledge to provide solutions based on the WBG’s experience in other countries;

the use of integrated services with the participation of the World Bank, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA); and

the publication of Uruguayan development experiences in web sites where the WBG can serve as a platform for the dissemination of successful reforms.

Similarly, the WBG has a great interest in continuing work with a client such as Uruguay in order to:

collaborate with a country in which equitable growth and the support of the poorest 40% of the population are fundamental values; and

join efforts and search for innovative development solutions to assist the country and create positive externalities in knowledge that can be used by other WBG clients in Latin America and other regions.

The work program for the 2015-2020 is structured around three pillars:

Generate resilience to economic vulnerability and climate change

Back government efforts to redirect the social contract towards the young

Encourage a greater integration of Uruguay in the global economy

The World Bank Group (comprised of three institutions: IBRD, IFC and MIGA) has in Uruguay an active portfolio that amounts US$1.000 billion. The IBRD has currently six active operations:

Four investment projects for an amount of US$185 million in the area of education, water and sanitation, agriculture and electronic government.

One Results-Based Project (P4R) for an amount of US$136 million for road construction and maintenance.

One loan for development policies for an amount of US$260 million, commonly known as “contingent lines”, which is yet to be disbursed. It is worth pointing out that this kind of contingent financing played an important role in improving the credit rating of the country, which obtained the Investment Grade early in 2012.

The participation of the IFC is currently focused on priority areas, such as agro-industry (whose aim is that the most competitive Uruguayan enterprises take part in global value chains), infrastructure support, financial sector and innovation, considering small and medium sized companies (SMEs) as a crosscutting support pillar. The IFC’s current portfolio in Uruguay includes two projects related to agro-industry and Fintech valued at approximately US$13 million.

MIGA portfolio amounts to US$439 million and it is concentrated in one operation in the financial sector.

Furthermore, the project portfolio is complemented with non-reimbursable technical assistance, donations and different studies, such as water resource management in Uruguay, demographic changes, analysis on grain-export logistics chains and green growth, among others.

The participation of the IFC is currently focused on priority areas such as infrastructure (barge transport, renewable energy), the financial sector and agro-industry (food production), with small and medium sized companies (SMEs) as a crosscutting support pillar. The IFC’s current portfolio in Uruguay numbers four projects valued at approximately US$101 million. For its part, in 2016 MIGA issued a US$439 million guarantee for the Uruguayan subsidiary of Banco Santander.

Furthermore, its project portfolio is complemented with non-reimbursable technical assistance donations and studies such as water resource management in Uruguay, demographic changes, an analysis on grain-export logistics chains and green growth, among others.

Last Updated: Apr 09, 2019

The World Bank Group has worked alongside different Uruguayan governments in areas such as infrastructure, transport, agriculture, natural resources, education, sanitation and health. Translated into results, this means, for example: 12,300 new water connections in 12 cities, three water treatment plants in Minas, Treinta y Tres and Durazno, supplying 60,000 people; 5,300 Uruguayan producers with better productive capacities, among other achievements.

Since 2010, more than US$1 billion have been approved in loans aimed at financing investments in infrastructure, agriculture, environment and institutional strengthening, as well as to increase the Government’s capacity to protect the most vulnerable sectors of the population from external economic shocks through contingent financing. Moreover, the World Bank has provided analytical and technical support.

Finally, in relation to the development of financial services and innovative knowledge that may provide solutions among countries, the World Bank Group facilitated Uruguay’s participation in 20 South-South initiatives on different topics, such as: road maintenance and performance based disbursements with Morocco, ICT in education with Armenia, experience with the livestock traceability system with Kazakhstan, agricultural information systems with Mexico and health experience with Paraguay and Chile. In addition, Uruguay received delegations from Kyrgyzstan (who were interested in improving the information systems in their national electricity company), Zimbabwe/Botswana (for budget issues) Nicaragua (in order to improve statistical capability of the country) and Costa Rica (in order to share the experience on water management). Moreover, representatives from the private sector of Uganda came to Uruguay, sponsored by the IFC.

The following are some of the results of the World Bank and Uruguay’s work:

Climate Insurance: Various countries (not only from the region) have approached the World Bank in search of a similar solution to the one implemented with the Uruguayan government. In December 2013, the World Bank signed an agreement with the energy company (UTE), in which the former provided a hedge for 18 months in order to deal with the combined risks of drought and high oil prices. This transaction was designed to help the company compensate for any financial loss that may occur when the lack of rain reduces the volume of water in the reservoirs that supplies the electricity plants, forcing the company to resort to thermal generation, which has a higher cost and requires the importation of alternative fuels. This was the major transaction of this type in the market (US$ 450 million) and it was the first time that a hedging transaction on commodities was made between an emerging country and the World Bank.

Responsible Production Project. Since 2005, the World Bank has strived to encourage small and medium sized Uruguayan producers to adopt economically and environmentally sustainable production systems and to work with technical improvements in soil management, water and biological diversity in order to contribute to the long-term sustainability of agricultural production in the country. This was done by orienting financial resources and technical assistance to individual producers or groups, interested in carrying out projects in their properties. The project financed 5,300 property sub-projects throughout the country, 86% of which belonged to small producers. Approximately, 28,000 people benefited directly, while 600 technicians were trained in sustainable development and comprehensive natural resource management. Additionally, the project managed to coordinate the work of more than 160 institutions.

The Foot and Mouth Disease Eradication Emergency Project was a key contribution to achieve the status of a country free of foot and mouth disease after the outbreak in 2001. Uruguay recovered access to markets and contributed to the continuing profitability of producers. Approximately, 50,000 producers benefited from this project. Furthermore, and in order to avoid similar situations, the World Bank supported the development of a National Livestock Information System (SNIG), which allowed Uruguay to become the unique country in America, and among a few of the world, with 100% traceability of individual cattle. Presently, Uruguay’s Ministry of Agriculture, with World Bank’s support, has taken a further step in the development of agricultural technologies, developing a National Agricultural Information System (SNIA). This consists in an online platform that consolidates different data, such as: weather forecasts, early warnings, among others. The databases are already helping agricultural and livestock producers to mitigate weather phenomena impacts on their production. See related article.